British Steel to challenge European subsidies

BRITISH STEEL, frustrated by a lack of progress on plant closures in Europe, is taking legal action against the European Commission to demand that pounds 5.2bn of recent government payments to Italian and Spanish producers are quashed on the grounds that they were illegal state aid.

British Steel will maintain to the European Court that the payments to Ilva of Italy and CSI of Spain, authorised by the commission in April, fell outside the code governing steel subsidies.

It will also argue that the commission could not legally have approved payments outside the code because the sums involved were not justified under the European Coal and Steel Community Treaty and discriminated against private, unsubsidised steelmakers.

News of British Steel's legal attack accompanied figures showing the company's turnround to a pre- tax profit of pounds 80m compared with losses of pounds 149m, its first full year of profit since 1991.

A better-than-expected doubling of the dividend to 2p, with a final of 1.5p, helped the shares 5.75p higher to 139p.

British Steel's latest action underlines the deteriorating relationships between the company and European steel officials. It is already appealing against a pounds 25m fine for alleged breaches of European competition laws.

The present dispute goes back to last December when Martin Bangemann, the European industry commissioner, allowed state- owned companies in Germany, Italy, Spain and Portugal to continue to receive pounds 5.2bn of subsidies from their governments in return for cutting steelmaking capacity by 5.5 million tonnes.

British Steel product sales rose by 6 per cent to pounds 3.5bn last year, with volumes recovering by 2 per cent and prices by 5 per cent with strong advances in the UK and outside Europe. This was partly offset by a downturn in Continental European markets, where overcapacity led to depressed prices.